Robert Kavcic and Shelly Kaushik

November 5, 2026

Finance Minister François Philippe Champagne tabled the Carney government’s second budget today. The following is our reporting and analysis on its major takeaways:

Key Messages

• Budget deficit of $62.3 billion in FY26/27, $62.5 billion in FY27/28.
• Debt/GDP slips to 39.9%; medium-term holds above 40%.
• Net new stimulus of $15 billion this fiscal year, mostly already announced.
• Pro-growth policy tilt with tax relief, infrastructure spending and gov’t efficiency.
• Economic assumptions are reasonable in 2026 and 2027 given resilience amid trade uncertainty.

Overview: Spend What You Earn—All of It

Ottawa’s Budget 2026 (PDF) comes amid better-than-expected economic resilience against trade and geopolitical headwinds. Still, the government remains on a stimulus track, with net new spending taking up almost all the fiscal room from developments since the spring. That leaves the fiscal picture remarkably little changed with the debt-to-GDP ratio expected to remain around 40% through the forecast horizon. On the bright side, the government’s priorities remain consistent with its pro-growth agenda, highlighted by the previously announced Productivity Mega Deduction. Canada is in a relatively favourable fiscal position compared to its global peers, and is using some of that capacity for longer-term investment.

Ottawa is leaning further into the government’s agenda to spur investment and improve affordability, at the cost of running persistent sizeable deficits. Even though deficits persist at levels similar to those seen under the prior iteration of this government, the policy driving those deficits is more palatable from an economic perspective. That is, deficits that drive longer-term productivity and supply-side expansion are much worthier than those that bloat the size of government and various programs. Canada’s fiscal position offers room to run with this policy approach, even if that room is not infinite.

The FY26/27 budget deficit is now estimated at $62.3 billion (1.8% of GDP), a touch smaller than the $65.3 billion estimated in the spring update. This follows an estimated $39.3 billion shortfall in FY25/26, sharply smaller than the $66.9 billion estimated in the spring. A stronger underlying fiscal position is the result of sturdy nominal GDP growth, with an assist from high oil prices, as well as a lower track for baseline program spending, including a markdown of future employee benefit costs (thanks to a higher discount rate). That has been effectively swallowed up by new taxation/spending announcements this fiscal year. Indeed, economic and fiscal developments since the spring update, pegged at $21.5 billion for the current fiscal year, are almost entirely offset by new measures leading up to, and in, this budget. The budget deficit is projected to widen slightly to $62.5 billion in FY27/28 before steadily narrowing to $52.9 billion by FY30/31, or 1.3% of GDP, with no plan to balance the books.

Net new stimulus runs at roughly $15.2 billion (or about 0.4% of GDP) for FY26/27 before more than doubling to $33.8 billion for FY27/28, thanks to the many policy measures already announced in recent months (e.g., the Productivity Mega Deduction and extension of the gas tax cut). Relative to what was already announced ahead of Budget Day, we judge that there’s roughly $3.5 billion (0.1% of GDP) in incremental new announcements for FY26/27 and $12 billion for FY27/28 (0.3% of GDP). While there is incremental new stimulus hitting the economy on top of the already-announced measures, we won’t be scrambling to revise up our near-term growth outlook. From a longer-term perspective, we remain constructive on where policy is going. Canada has much of what the global economy needs for the decade ahead including diverse energy sources, critical minerals and talent; it has a relatively stable political environment; and, it has a relatively favourable fiscal position from which to work from.

Over the five-year projection horizon, there is roughly $142 billion of net new stimulus including recently-made announcements. Of that total, roughly $11 billion is in the form of tax relief, the largest chunk of which is another one-time 50% top-up in the Canada Groceries and Essentials Benefit in early 2027. On the corporate side, the largest price tags come with the extension of the Clean Electricity and Clean Technology tax credits to the end of 2040. Additionally, Ottawa continues to lean into accelerating private-sector investment through the Major Projects Office and fast-tracked approvals.

Deficit Outlook Stable

The budget deficit is estimated at $62.3 billion in FY26/27 (1.8% of GDP), a deterioration from the (vastly improved) $39.3 billion now expected for FY25/26 thanks to better-than-expected revenues (public accounts still pending). This year’s deficit is a modest improvement from the $65.3 billion expected in the 2026 spring fiscal update. The economy has performed relatively well since that point, and the vast majority of the shift is the result of new spending and tax relief measures. For FY27/28, the budget deficit is estimated at $62.5 billion (1.8% of GDP). Revenues are projected to rise a solid 4.4% to $564.2 billion in FY27/28, led by gains in tax receipts despite the hit from the Productivity Mega Deduction. Meantime, program spending is projected to rise 3.1% after soaring 8.9% in FY26/27, reflecting the many government priorities. That said, while Ottawa is rolling out pro-growth stimulus and increases in defence spending, it is simultaneously keeping a lid on department-level spending, which is expected to rise less than 1% in FY27/28. Meantime, the debt-to-GDP ratio will rise to 40.2% in the coming fiscal year, from 39.9% in FY26/27, and is expected to hold above 40% through the end of the forecast horizon.

Ottawa again presents separate operating and capital budgets. The longstanding accounting remains in place and will be the focus for markets, so this remains mostly a cosmetic exercise as the classification of “investment” can be fuzzy. Nevertheless, this is the basis of Ottawa’s fiscal targets, along with a declining broad deficit-to-GDP ratio. The operating deficit is pegged at $3.5 billion in FY26/27 before flipping to an $11.2 billion surplus in FY27/28.

Reasonable Economic Assumptions

The economic outlook presented in this budget is broadly reasonable, based on an average of private sector surveys conducted in September. While the outlook for tariffs and the energy price shock remains uncertain, growth has so far been resilient, albeit choppy. Higher prices and relative tariff insulation have helped resource-producing regions while the broader economy has shown signs of underlying momentum amid the trade war. The budget estimates economic growth to come in at 1.0% this year, a tick firmer than our current call. Growth is expected to pick up to 1.7% (BMO is at 1.8%) in 2027 as the green shoots of resilience take root and we start to see more payoff from the major projects and investment drive.

One source of downside risk to the recovery is the Bank of Canada’s monetary tightening cycle, which kicked off after these forecasts were finalized. Even so, the outlook for interest rates is in line with our forecasts. The 10-year yield is pegged at 3.6% this year before nudging up to 3.8% in 2027.

Meantime, CPI inflation is expected to slow to 2.2% by next year. That’s a touch softer than our call (2.5%), adding some modest potential upside to the outlook for tax revenues. The budget expects WTI prices to average US$79/bbl in 2027, just below our call of $80. Suffice it to say, the Budget assumes much less pass-through from the energy shock to broader inflation than the Bank of Canada did in its October projections.

Debt Management Strategy

Gross bond issuance is expected to step up to $316 billion in FY27/28, $18 billion higher than the current fiscal year. After accounting for maturities, net issuance is estimated at $163 billion.

Treasury bill issuance will run at $290 billion in FY27/28, slightly higher than the $284 billion this fiscal year, with a continued focus on 3-, 6-, and 12-month bills. Bond issuance remains concentrated at the shorter end, with $120 billion expected for the 2-year, $88 billion for the 5-year, $80 billion for the 10-year, and $24 billion for the 30-year. The issuance levels for 2-years (up $10 billion) and 5-years (up $8 billion) are slightly higher from FY26/27, with 10- and 30-years remaining steady. The Green Bond Program will remain at $4 billion annually.

Summary and Market Impact

This is a big budget that continues to run substantial deficits, but nothing beyond the scope of what has already been long known in the market. Importantly, the policy underlying these deficits is more palatable than those of the past decade, built less on social spending and bigger government, and more (but not entirely) on pro-growth measures that could have some longer-term payoff. For a country hungry for productivity growth, tax relief and a major infrastructure push are hard to dislike. For the fiscal hawks, this budget left significant fiscal gains on the table by effectively spending all of the upside.

The bond market impact should be muted given that the current fiscal trajectory largely resembles that in place as of the prior fiscal update. Bond issuance will be slightly higher in FY27/28, but not out of line with expectations. Most immediately, the refreshed Monetary Policy Framework, released alongside the budget, will maintain the inflation target at 2%, with the focus on the 12-month headline CPI (see Appendix). The incremental stimulus announced in this budget will get incorporated into the Bank of Canada’s near-term outlook in the January MPR, but there’s likely not enough to move the needle on policy expectations.

As such, the Canadian dollar is unlikely to move much in response. Canada’s relative fiscal advantage remains in place, and becomes more vivid when other G7 nations are running up deficits around 5% of GDP, with markets pushing back in some cases. Meantime, strong execution on the investment side could actually help longer-term productivity growth. For now, however, near-term inflation trends and any resolution of the trade dispute will matter more for both yields and the loonie.

The equity market will zero in on the push to drive private-sector investment. Many industries will benefit from accelerated CCA rates, but the biggest item (Productivity Mega Deduction) was announced ahead of this document. Changes to the immigration plan are minimal, and suggest the short-term adjustment to population growth will still evolve to baseline growth of just under 1% by 2029 and beyond—this is an area that has impacted residential rent, credit card issuance and telecom subscribers.

Appendix: Highlights of Major Measures

Measures in this budget come with a $15 billion price tag for FY26/27, although the vast majority had been announced before Budget Day. The total cost jumps above $30 billion next fiscal year and remains in that range in the out-years.

Here’s a rundown of the notable measures:

The previously announced Productivity Mega Deduction carries the highest price tag, of more than $36 billion over five years. Building on last year’s Productivity Super Deduction, this measure allows businesses to immediately write off the cost of roughly 65% of new capital investment and brings Canada’s marginal effective tax rate on new business investment down to 6.4%, the lowest in the G7.

A Canada Growth Incentive includes two prongs: 1) a tax exemption for capital gains of up to $15 million from eligible investments in Canadian companies; and, 2) a longer capital gains tax deferral for small businesses when the proceeds are reinvested in other Canadian small businesses. The incentive comes with a price tag of $715 million over four years, starting in FY27/28. The capital gains exemption does not apply to gains from businesses providing consulting services, some professional services (including health care); in some resource, real estate, and other sectors; and franchises.

Some measures are designed to simplify the rules around business taxes, particularly around taxable preferred shares (including an immediate exemption for dividends paid by Canadian private corporations, and raising the dividend allowance from $500k to $1.5 million starting in tax years that end after 2026). The Scientific Research and Experimental Development (SR&ED) tax incentive program will be expanded to include some costs involved in bringing a new product to market, getting necessary approvals, and securing and maintaining IP protections. Additional sector-specific measures are targeted at farming and fishing (particularly around intergenerational transfers), registered charities (with excess corporate holdings), and cannabis (introducing a common excise duty stamp).

Affordability-focused measures include a one-time top-up in the Canada Groceries and Essentials Benefit is expected to be delivered in early 2027, following a similar top-up in the spring. The new supplement is expected to cost $4 billion this fiscal year. A suite of housing-related initiatives includes a pledge to end homelessness in ten years. The objective is supported by a cumulative $11 billion over four years.

The budget also announced a few changes to simplify the personal tax filing process. The deadline to file (and pay any taxes owing) is being pushed to May 15 for all individuals, including those self-employed, starting in the 2027 tax year. This is expected to save taxpayers over $200 million in interest and penalty payments over five years. A new “RRSP-for-life” will effectively merge RRSPs and RRIFs, eliminating the need to convert from the former to the latter at age 71 and simplifying some rules for survivors. And, some personal income tax deductions are being converted to flat amounts, including the Moving Expense Deduction, Home Accessibility Tax Credit, and Medical Expense Tax Credit.

The Clean Electricity and Clean Technology tax credits will be extended to the end of 2040, for a total cost of $2.4 billion over the five-year forecast horizon. Alongside other energy-related measures, the government plans to double the number of federally supported EV chargers.

There are few new details to the recently announced plan to attract private investment to the operations of Canada’s largest airports. Ottawa will begin consultations on specific oversight and regulations for travellers, including airport fees, aiming to select an operator by early 2029.

The government has introduced Canada Strong Notes to allow individuals to invest in the Canada Strong Fund towards nation-building projects and Canadian companies. Ottawa says the Notes will include principal protection and a coupon payment and will be available through participating financial institutions.

Following earlier initiatives across numerous sectors, Ottawa is proposing to give the Office of the Superintendent of Financial Institutions (OSFI) a secondary mandate to boost competition among financial institutions. The government intends to attract new entrants, including foreign bank subsidiaries, and otherwise support competition in the financial sector. Meantime, the limit on deposit insurance is being hiked to $250,000 (from $100,000).

The foreign buyer ban on residential homes is extended to January 1, 2029, and not adjusted to allow purchases of new properties.

Separately, the Department and Finance and Bank of Canada jointly announced the renewed Monetary Policy Framework that will be in effect through 2031. The inflation target remains at 2% (with less direct emphasis on employment). Inflation will be measured using the yearly change of the Consumer Price Index. Given the recent shift in the Bank’s focus from (various measures of) core to headline inflation, this framework reads as hawkish in the current environment—with headline CPI now running just above 3%. We’ll hear more from Governor Tiff Macklem in a speech on November 24.

Robert Kavcic and Shelly Kaushik are senior economists with BMO Capital Markets.